Can Sub-Saharan Africa survive another global downturn?

Football frenzy is sweeping across Africa. The best of African football is on display in the ongoing Africa Cup of Nations tournament (January 21-February 12).

Much of the build-up to the tournament has focused on those who will not be in it (Egypt, Nigeria, Cameroon, and South Africa) as much as those that will be in competing for the continent’s most prestigious football trophy.

Some argue that the absence of these so-called heavy weights will weaken the tournament. What they don’t realize is that the depth of football in Africa has improved significantly. There are no minnows anymore! How do you explain Guinea qualifying at the expense of Nigeria or Niger qualifying ahead of South Africa?

Well not only are improvements taking place in football fields across the continent but also in many other areas. The recent release of the World Bank’s Global Economic Prospects report observes that, notwithstanding the turbulence of the global economy in 2011, Sub-Saharan Africa managed to eke out a robust 4.9% growth.

Actually, if you take out South Africa, which alone accounts for a third of the region’s GDP, growth in Sub-Saharan Africa was some 5.9% – over a percentage point higher than the developing country average (excluding China) of 4.8% in 2011. Growth was not limited to a few countries, as GDP in about a third of countries in the region grew by at least 6%, with another 40% of countries growing between 4 and 6 percent. While external demand, supported by higher commodity prices, provided a strong impetus to growth the main growth driver was from domestic demand (rising consumption, investment, and government spending on productive activities).

But the global economy has now entered a new dangerous period. Some of the financial turmoil in Europe has spread to developing and other high-income countries. Indeed, compared to where they were mid-year 2011, by early January 2012, global stock markets had lost $6.5 trillion or 9.5% of global GDP.

For Sub-Saharan Africa, downside risks related to a fall in merchandise exports, commodity prices, tourism revenues, remittances and aid inflows remain significant risks. And for a number of countries these externally originating risks are lesser weightier than domestic risks related to adverse weather conditions or potential political upheavals. In this environment will growth in Sub-Saharan Africa hold-up in 2012?

It depends -the perfect economist response! The report estimates that, if these downside scenarios do materialize, growth in 2012 could tumble to about 3.6% in 2012 (remember that after the Lehman event growth in Sub-Saharan Africa tumbled to 2.0% in 2009 from 5.1% the previous year).

However, the global economy is not yet there, and what we find ourselves in is a sort of muddling through contained crisis situation. If the global economy continues to wade through this muddling through environment, growth in Sub-Saharan Africa is forecast to accelerate to 5.3% in 2012, thanks to higher expected flows of foreign direct investment, some new minerals exports that will be coming on stream for a number of countries (did you know that new iron ore exports in Sierra Leone is likely to increase its GDP by over 40% in 2012!), rising consumer spending, and the return to robust growth in Cote d’Ivoire from a contraction in 2011. What are the effects that you are seeing in your corner of Africa?

Are the winds from Europe and elsewhere cooling things up or is it party time along with the cup of nations celebrations?

By Allen Dennis

Source: blogs.worldbank.org